As we go into round five of bidding today in the FCC’s incentive auction, what is really happening? It’s hard to say as participants are restrained from discussing their bid strategy publicly, however Cooley LLP attorneys try to explain the actions by wireless carriers.
It’s a misperception, according to Michael Basile, Christina Burrow and Jason Rademacher, that broadcasters are driving up the prices and causing the large gap between the figure they are willing to accept for their surrendered spectrum and what the wireless companies are willing to pay. “There are two fallacies here: first, broadcasters have no ability to set auction prices – they
either say “yes” or “no” to the price that the FCC offers to pay; and second, the prices never go up in the broadcast auction – they only go down at a rate determined by the FCC,” wrote the trio.
The spectrum now being offered is much different from what was offered in previous auctions. In previous auctions, wireless companies bid on specific spectrum blocks. That meant if a carrier wanted to aggregate spectrum nationwide on uniform frequencies, it could do so through bidding.
In this auction, however, carriers are bidding on generic spectrum blocks. Up until this week, some of what’s been on the block has included impaired spectrum, Inside Towers reported.
After bidding is complete in the auction, the FCC will offer carriers the chance to bid again, “this time for the right to aggregate frequencies across their winning footprint. Under this auction format, if spectrum continuity is important to a wireless carrier, that bidder must reserve funds for the second ‘assignment’ phase of bidding,” according to the attorneys.
The “uncertainty” of the spectrum being offered appears to have impacted bidders’ behavior. “As fewer spectrum blocks have been offered in each bidding stage, wireless bids for the generic individual spectrum blocks have not gone up – as supply has dropped, demand has dropped as well (or at least wireless carriers have not been willing to increase prices in response to the lower supply).”
They note the FCC did not anticipate this bidding behavior. And net bids in each stage are actually lower than what’s been reported, because the Commission is offering set-asides and discounts which may be influencing bids by wireless carriers.
December 15, 2016
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